FAQ on private exchanges

A private
exchange essentially is a private business operated mostly by
brokers or insurers who sell insurance products to health
care consumers (employees of companies) through an online
product.

How do
employers fund health benefits through exchanges?

Most employers set up a defined
contribution plan (Section 125) for their employees, setting
aside a certain amount of pretax funds for each employee to
use to purchase health benefits. Employers that are
self-insured or that are fully insured and contract with HMOs
can participate.

What
if the health plan products exceed the employer's
contribution?

Employees must pay
for more comprehensive benefits by using their own funds.

What types of health
benefits are offered?

Employees
can choose major medical health plans and supplemental
insurance that includes dental, vision and disability.

When a private exchange offers
multiple carriers and several health plans, how does an
employee decide which to use?

The
exchanges offer online decision support tools that ask a
series of questions to determine the best plan to
recommend.

Private health insurance exchanges are making a slow but steady entrée into Southeast Michigan, with about 70 local companies using the exchanges as one way to pull back the curtain on health care coverage and costs.

Two new private exchanges have signed up more than 70 companies with coverage for 11,000 individuals. The exchanges are one option to the Affordable Care Act's public health exchange and traditional defined benefit coverage via employers.

Executives with Blue Cross Blue Shield of Michigan's GlidePath — the state's first private exchange, formed in 2011 — and Royal Oak-based iSelect Custom Benefits Store say sales have progressed as expected, although the slow rollout of Obamacare last fall has caused some companies to delay overhauling their health benefit plans.

Ken Dallafior

"Private exchanges offer an alternative to employers to manage employee benefits in a different way," said Ken Dallafior, executive vice president of group business and corporate marketing for Blue Cross. "If they want to stay in the game, it is another way to manage (health benefits) with and for their employees."

Dallafior said the more than 1,000 agents certified to sell GlidePath have done a good job explaining the private exchange concept to employers. GlidePath has about 50 companies with 10,000 employee lives on the exchange, he said.

"The numbers grow every day, and we expect the uptick to continue," Dallafior said.

Denise Christy, iSelect's president, said a growing number of companies are finding they can more effectively budget annual health insurance costs through a defined benefit contribution approach.

Under defined contribution, Christy said, employers can set a budget for health care costs below their annual increases and then allocate each employee a predetermined amount to spend on benefits in the exchange. The employee's contribution would be deducted from their payroll.

Companies could also continue to self-insure their risk using a third-party administrator or one of the health plans on the iSelect exchange, she said.

Denise Christy

"ISelect works because of three things: strong carrier partners, easy-to-use technology and a great group of agents," said Christy, noting that nearly 1,000 agents have been certified to sell iSelect.

As a multi-carrier private health insurance exchange that targets companies with 10 to 1,000 employees, iSelect contracts with Health Alliance Plan and Priority Health to offer up to 10 custom health products each.

Christy said iSelect has enrolled 20 companies with more than 1,000 total covered lives. So far, the largest company has 140 employees with 90 signing up, she said.

At least two other companies have been marketing private exchanges in Michigan — Mercer, with its Mercer Marketplace, and New York City-based Willis Group, with its Willis Advantage — although more are coming. The private exchanges are not open to individuals, however.

"All major carriers (Aetna, Cigna and United Healthcare) are offering exchanges, and a majority of the larger consulting and brokerage houses are in the game or partnering with an exchange platform," said Lester Morales, Willis' chief growth officer based in Charlotte, N.C.

Morales said companies participating in an exchange need to choose one that has a robust employee support decision-making tool and that makes an effort to help employees contain costs.

"In the defined contribution approach, if the underlying rates of the plans being offered on exchange continue to trend at double digits, (an employee's) plan buys less and less over the years," Morales said.

"You need a health management (and wellness) approach to the rise in health care costs; otherwise, you are just cost-shifting to employees," he said.

Early last year, Mercer launched its Mercer Marketplace for employers with at least 100 employees.

Jerry Konal

While Mercer nationally has signed up 67 companies with 282,000 employees, dependents and retirees, many Michigan companies are still reviewing their options, said Jerry Konal, Mercer's health and benefits leader in Detroit.

"There is a tremendous amount of interest. Employers are just learning about it. They need lead time to plan changes to their plans," Konal said.

Morales said Willis has two companies on the Willis Advantage exchange with another five coming on this year. More than 600 employers nationally are interested in Willis' approach, a multi-step process that first involves offering consulting services to help a company find the best approach, he said.

Dallafior said delays in rolling out the Affordable Care Act public insurance exchange created some hesitation by companies to make decisions on coverage options for their employees.

Christy agreed. "The only thing that has held me back," she said, is new federal rules that delayed until 2016 the small business (50-99 workers) health insurance mandate under the Affordable Care Act.

"There was some impact because it has pushed off decision-making," Christy said.

"What is really interesting about the Mercer Marketplace is individuals have learned how to leverage their services," Konal said. "They bought a different level of coverage, maybe basic, and then add critical illness and hospital indemnity. It is all left to their discretion and choice."